Is Gold Poised For Breakout?

LONDON - With gold hovering around record price levels again, does the recent surge suggest a breakout to much higher levels is imminent.

After a month or so in the doldrums after hitting a record high in December, the Middle East/North Africa (MENA) unrest has launched the gold price towards yet new highs, and at the time of writing the yellow metal was trading just above $1,430 an ounce in Europe.

In OTC trading in the U.S. yesterday a new all-time high had been breached temporarily.

Some observers, notably Julian Phillips of Gold Forecaster who is a regular writer on Mineweb, sees the latest move in the gold price as being a long-awaited breakout and now expects to see a move to new highs between $1,500 and $2,000 this year with higher prices thereafter.

Other pro-gold commentators will be even more bullish, but there will also be plenty of naysayers out there They just cannot recognise that the movement in the gold price defies what is nowadays deemed as normal investment logic because gold is hard-wired into the psyche of a large part of the world's population as the perennial wealth store and a hedge against bad times. When this coincides with external events like the MENA ‘uprisings' the pressure pushing the gold price up can be extremely strong.

Gold demand is currently being skewed by burgeoning offtake in the East - notably in China and India and other South and Far Eastern nations - where a sea change has been taking place in the wealth and investment potential of the population. This has been brought on by enormous advances in GDP and a corresponding growth in the numbers of people entering the potential gold-buying market, and in their disposable incomes.

Probably nowhere is this being seen to more effect than China. Anecdotal reports indicated a tremendous surge in gold buying ahead of the Chinese New Year in early February - and by all accounts this is continuing after the New Year as the population is becoming increasingly nervous about inflation, which Chinese economists, seriously worried about the ‘export' effects on prices of the U.S. Quantitative Easing programs, view as Bernanke-inspired. There are reports of long lines developing again at shopping outlets selling gold and gold jewellery with demand running hugely ahead of the same time last year - a year in which Chinese demand reached record levels.